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Hotel Price Liberalization to Help Fuel Growth

Hotel Price Liberalization to Help Fuel Growth

The unexpected announcement by Iran's top tourism chief last week that hotel prices will be deregulated has been received well by industry insiders who believe it will help spur growth and boost competition.
During a panel discussion in last week's tourism investment conference in Tehran, Masoud Soltanifar, the head of Iran's Cultural Heritage, Handicrafts and Tourism Organization, said the basis is there to deregulate room fees, which will soon lead to competitive prices.
The issue of liberalization was first proposed in March by Jamshid Hamzehzadeh, president of Iran Hoteliers' Society, who called for deregulating hotel prices following the success of liberalizing airfares, which has led to an increase in domestic flights.
"We pray that [Soltanifar] is serious about deregulating prices," Hamzehzadeh was quoted as saying by Mehr News Agency over the weekend. "We haven't been consulted about this, but we'll follow through with it because it will benefit the industry."
Inflated Prices
Citing examples in other sectors, critics argue that deregulating hotel rates will result in inflated prices.
Ebrahim Pourfaraj, the head of Iranian Tour Operators' Society, says the move only makes sense when there are plenty of similarly-rated hotels in a city, which is not the case in Iran.
"Take Ahvaz [in Khuzestan Province] for example: It has only one five-star hotel. In the absence of competition, allowing the hotel to set its own prices could be problematic," he said.
"Tourists looking for quality accommodation will have no choice but to pay whatever the hotel charges, since there are no alternatives."
But others, including Hamzehzadeh and Jafar Kheirkhahan, an economist, disagree.
“People are willing to pay handsomely for quality services that hotels can offer only if they are allowed to set their own prices,” Kheirkhahan said.
The economist said offering good services will attract more people, which encourages suppliers (in this case, hoteliers) to diversify and expand their services, resulting in more revenue.
Once the industry starts turning a profit, financiers will be encouraged to enter the market and build hotels, which sector has now been incentivized since Iran offered up to 13 years of tax holidays to hoteliers.
When more hotels offer better services, they will eventually slash their prices to remain competitive.
“This helps encourage Iranians to travel domestically, instead of traveling to neighboring countries in search of quality time and taking precious foreign currency with them out of Iran,” Kheirkhahan argued.
According to official data, Iranians annually pay an estimated $5 billion in fares to foreign airlines. It is believed that they spend several billion more for lodging and shopping in other countries.
Visitor numbers have boomed in recent years, rising from 2.2 million annually in 2009 to 5.2 million in 2015, thanks to a partial thaw in Iran's relations with the world resulting from the landmark nuclear deal signed last year with the six world powers.
By 2025, they are hoping to reach 20 million visitors a year.
The government hopes to see the construction of 300 new hotels over the next five years, as it seeks radical improvements to its low-quality tourist accommodation.
A rejuvenated tourism sector can create 140,000 new jobs, with around half coming from Iran's handicrafts sector.
Projects to build some 170 four- and five-star hotels are already underway.